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| GHQ > SEC Filings for GHQ > Form 10-Q on 14-Nov-2008 | All Recent SEC Filings |
14-Nov-2008
Quarterly Report
• will likely cause a change in control if a substantial number of our shares of common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and may also result in the resignation or removal of one or more of our current executive officers and directors; and
• may adversely affect prevailing market prices for our common stock.
Similarly, if we issue debt securities, it could result in:
• default and foreclosure on our assets if our operating revenues after a
business combination were insufficient to pay our debt obligations;
• acceleration of our obligations to repay the indebtedness even if we have made all principal and interest payments when due if the debt security contained covenants that require the maintenance of certain financial ratios or reserves and any such covenant were breached without a waiver or renegotiation of that covenant;
• our immediate payment of all principal and accrued interest, if any, if the debt security were payable on demand; and
• our inability to obtain additional financing, if necessary, if the debt security contained covenants restricting our ability to do so.
Through September, 2008, our efforts have been limited to organizational
activities, activities relating to our initial public offering, activities
relating to identifying, evaluating and selecting a prospective acquisition
candidate, and activities relating to general corporate matters; we have neither
engaged in any operations nor generated any revenues, other than interest income
earned on the proceeds of our initial public offering and our private placement.
We expect to incur increased expenses as a result of being a public company (for
legal, financial reporting, accounting and auditing compliance), as well as for
due diligence expenses. For the three months ended September 30, 2008, we earned
$1,097,043, which consisted of $1,943,075 of interest income primarily from the
trust account offset by $106,198 of formation, general and administrative costs
and $739,834 of provision for income taxes. For the nine months ended
September 30, 2008, we earned $2,548,339, which consisted of $4,936,297 of
interest income primarily from the trust account offset by $300,195 of
formation, general and administrative costs and $2,087,763 of provision for
income taxes.
Business Combination with Iridium Holdings LLC
On September 22, 2008, the Company announced that it had entered in an
agreement (the "Transaction Agreement") to acquire Iridium Holdings LLC
("Iridium"), a leading provider of voice and data mobile satellite services (the
"Proposed Business Combination").
Under the terms of the Transaction Agreement, the Company will acquire
Iridium in exchange for 36.0 million shares of its common stock and
$77.1 million of cash, subject to adjustment. In addition, 90 days following the
closing of the Proposed Business Combination, if Iridium has in effect a valid
election under Section 754 of the Internal Revenue Code of 1986, as amended, the
Company will make a tax benefits payment of up to $30 million in aggregate to
certain sellers to compensate for the tax basis step-up. Upon the closing of the
Proposed Business Combination, Iridium will become a subsidiary of the Company
and the combined enterprise will be renamed "Iridium Communications Inc." and
will apply for listing on NASDAQ.
The Transaction Agreement and related documents have been unanimously
approved by the board of directors of the Company and Iridium. The closing of
the Proposed Business Combination is subject to customary closing conditions
including the expiration or termination of waiting periods under the
Hart-Scott-Rodino Act, Federal Communications Commission approval, other
regulatory approvals and the approval of the Company's stockholders, including a
majority of the shares of the Company's common stock issued in its initial
public offering. The Company has been granted early termination of the
Hart-Scott-Rodino Act. In addition, the closing of the Proposed Business
Combination is conditioned on the requirement that stockholders owning not more
than 11,999,999 shares of the Company's common stock (such number representing
30 percent minus one share of the 40,000,000 shares of issued in its initial
public offering) vote against the Proposed Business Combination and validly
exercise their conversion rights to have their shares converted into cash, as
permitted by the Company's certificate of incorporation. The Company's initial
stockholders have agreed to vote the 8,500,000 shares they already own, which
were issued to them prior to the Company's initial public offering, in
accordance with the vote of the holders of a majority of the shares issued in
the initial public offering. The Proposed Business Combination is expected to
close in the first part of 2009 but may vary depending upon the timing of
regulatory approvals.
If (x) the Transaction Agreement is terminated either by the Company or
Iridium because the Company's stockholders shall have failed to approve the
Proposed Business Combination, (y) the Company breaches its obligations to hold
a stockholder meeting or to use its reasonable best efforts to consummate the
Proposed Business Combination contemplated by the Transaction Agreement, and
(z) the Company consummates an initial business combination (other than with
Iridium), the Company will be obligated to pay to Iridium within two business
days of the consummation of such other business combination, a break-up fee
consisting of $5,000,000 in cash, shares of the Company's common stock or
combination thereof, at the Company's election (the "Termination Fee"). The
Termination Fee will be the exclusive remedy of Iridium, the Sellers and their
respective affiliates with respect to any such breach except in the case where,
prior to 10 business days immediately following the termination of the
Transaction Agreement, Iridium notifies the Company in writing that it believes
in good faith the Company has committed willful breach of the Transaction
Agreement. In that case, the Company need not pay the Termination Fee and
Iridium shall have the right to pursue its remedies for willful breach against
the Company, subject to other limitations set forth in the Transaction
Agreement.
The Company intends to launch a tender offer for its common shares which will
close concurrent with completion of the Proposed Business Combination, pursuant
to which shares will be acquired at a price per share of $10.50, up to an
aggregate purchase price of $120 million reduced by the amount of cash
distributed to stockholders who vote against the Proposed Business Combination
and elect conversion of their shares.
On September 22, 2008, the Company entered into a side letter agreement (the
"Side Letter") with Greenhill whereby Greenhill has agreed to forfeit at the
closing of the Proposed Business Combination the following securities of the
Company which it currently owns: (1) 1,441,176 common shares; (2) 8,369,563
founder warrants; and (3) 2,000,000 private placement warrants. These
forfeitures will reduce the Company's shares and warrants outstanding
immediately post-closing.
We intend to file a preliminary proxy statement with the SEC with respect to
the proposed Business Combination. As of the date of the filing of this Form
10-Q, neither the preliminary proxy statement nor the definitive proxy statement
have been filed with the SEC or disseminated to shareholders. Investors are
urged to review the preliminary proxy statement and definitive proxy statement,
when completed, in its entirety. A more complete description of the Proposed
Business Combination described above, is included in a Current Report on Form
8-K filed on September 23, 2008.
Critical Accounting Policies
We have identified the following as our critical accounting policies:
Cash and Cash Equivalents - The Company considers all highly liquid
investments with maturities of three months or less at the date of purchase to
be cash equivalents.
Concentration of Credit Risk - The Company maintains its cash and cash
equivalents with a financial institution with high credit ratings. At times, the
Company may maintain deposits in federally insured financial institutions in
excess of federally insured (FDIC) limits. However, management believes that the
Company is not exposed to significant credit risk due to the financial position
of the depository institution in which those deposits are held. The Company does
not believe the cash equivalents held in trust at broker are subject to
significant credit risk as the portfolio is invested in assets, which meet the
applicable conditions of 2a-7 of the Investment Company Act of 1940. The Company
has not experienced any losses on this account.
Fair Value of Financial Instruments - Cash and cash equivalents, investments
held in trust at broker and notes payable are carried at cost, which
approximates fair value due to the short-term nature of these investments.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
materially from those estimates.
Earnings per Share - The Company calculates earnings per share ("EPS") in
accordance with FASB Statement No. 128, "Earnings per Share" ("SFAS 128"). Basic
and diluted EPS is calculated by dividing net income by the weighted-average
number of shares of common stock outstanding during the period.
Warrants issued by the Company in the Public Offering and private placement
are contingently exercisable at the later of one year from the date of the
offering and the consummation of a business combination, provided, in each case,
there is an effective registration statement covering the shares issuable upon
exercise of the warrants. Hence, these are presented in the proforma diluted
EPS.
Proforma diluted EPS includes the determinants of basic and diluted EPS plus
to the extent dilutive, the incremental number of shares of common stock to
settle outstanding common stock purchase warrants, as calculated using the
treasury stock method.
Income Taxes - The Company complies with the Financial Accounting Standards
Board ("FASB") issued FASB Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes," an interpretation of FASB Statement No. 109 ("FIN 48"), which
provides criteria for the recognition, measurement, presentation and disclosure
of uncertain tax position. A tax benefit from an uncertain position may be
recognized only if it is "more likely than not" that the position is sustainable
based on its technical merits. The Company filed its first income tax return on
September 15, 2008. Management does not plan on taking any uncertain tax
positions when filing the Company's tax returns consequently the Company has not
recognized any liabilities under FIN 48. The Company will recognize interest and
penalties related to uncertain tax positions as an operating expense in its
condensed statements of income.
Deferred income taxes are provided for the differences between bases of
assets and liabilities for financial reporting and income tax purposes. A
valuation allowance is established when necessary to reduce deferred tax assets
to the amount expected to be realized.
New Accounting Pronouncements - Effective January 1, 2008, the Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair
Value Measurements" ("SFAS 157"), for assets and liabilities measured at fair
value on a recurring basis. SFAS 157 accomplished the following key objectives:
• Defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at the measurement date;
• Establishes a three-level hierarchy ("valuation hierarchy") for fair value measurements;
• Requires consideration of the Company's creditworthiness when valuing liabilities; and
• Expands disclosures about instruments measured at fair value.
The valuation hierarchy is based upon the transparency of inputs to the
valuation of an asset or liability as of the measurement date. A financial
instrument's categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. The
three levels of the valuation hierarchy and the distribution of the Company's
financial assets within it are as follows:
• Level 1 - inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active markets.
• Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instrument.
• Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.
In February 2007, the FASB issued SFAS No. 159, "Fair Value Option for
Financial Assets and Financial Liabilities - Including an amendment of FASB
Statement No. 115" ("SFAS 159"). SFAS 159 permits an entity to elect fair value
as the initial and subsequent measurement attribute for many financial assets
and liabilities. Entities electing the fair value option would be required to
recognize changes in fair value in earnings. Entities electing the fair value
option would be required to distinguish, on the face of the balance sheet, the
fair value of assets and liabilities for which the fair value option has been
elected and similar assets and liabilities measured using another measurement
attribute. SFAS 159 became effective beginning January 1, 2008. The Company
elected not to measure any eligible items using the fair value option in
accordance with SFAS No. 159 and therefore, SFAS No. 159 did not have an impact
on the Company's condensed balance sheets, condensed statements of income and
condensed statements of cash flows.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS 141R"). SFAS 141R provides revised guidance on how
acquirers recognize and measure the consideration transferred, identifiable
assets acquired, liabilities assumed, noncontrolling interests, and goodwill
acquired in a business combination. SFAS 141R also expands required disclosures
surrounding the nature of financial effects of business combinations. SFAS 141R
is effective, on a prospective basis, for companies for fiscal years beginning
January 1, 2009. The Company is currently assessing the potential effect of SFAS
141R on its condensed balance sheets, condensed statements of income and
condensed statements of cash flows.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements" ("SFAS 160"). SFAS 160 establishes
requirements for ownership interests in subsidiaries held by parties other than
the Company (sometimes called "minority interests") be clearly identified,
presented, and disclosed in the condensed balance sheet within equity, but
separate from the parent's equity. All changes in the parent's ownership
interests are required to be accounted for consistently as equity transactions
and any noncontrolling equity investments in deconsolidated subsidiaries must be
measured initially at fair value. SFAS 160 is effective, on a prospective basis,
for companies for fiscal years beginning January 2009. However, presentation and
disclosure requirements must be retrospectively applied to comparative financial
statements. The Company is currently assessing the impact of SFAS 160 on its
condensed balance sheets and condensed statements of income.
In April 2008, the FASB issued FSP FAS 142-3, "Determination of the Useful
Life of Intangible Assets" ("FSP FAS 142-3"). FSP FAS 142-3 amends the factors
that should be considered in developing a renewal or extension assumptions used
for purposes of determining the useful life of a recognized intangible asset
under SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). FSP FAS
142-3 is intended to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142 and the period of expected cash flows
used to measure the fair value of the asset under SFAS 141R and other
U.S. generally accepted accounting principles. FSP FAS 142-3 is effective for
fiscal years beginning after December 15, 2008. Earlier application is not
permitted. The Company will be assessing the potential effect of FSP FAS 142-3
if applicable, once we enter into a business combination.
In October, 2008, the FASB issued FSP FAS 157-3, "Determining the Fair Value
of a Financial Asset When the Market for That Asset Is Not Active" ("FSP FAS
157-3") which provided additional interpretative guidance on the application of
SFAS No. 157 in markets that are not active and provided an illustrative example
to demonstrate how the fair value of a financial asset is determined when the
market for the financial asset is inactive. FSP FAS 157-3 was effective upon
issuance, including for prior periods for which financial statements have not
yet been issued. The issuance of interpretative guidance on the application of
SFAS No. 157 did not have a material impact on the Company's condensed financial
statements.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet financing arrangements and
have not established any special purpose entities. We have not guaranteed any
debt or commitments of other entities or entered into any options on
non-financial assets.
Liquidity and Capital Resources
A total of $400,000,000, including $375,648,500 of the net proceeds from the
initial public offering, $8,000,000 from the sale of the private placement
warrants to the founding stockholder and $16,351,500 of deferred underwriting
discounts and commissions, was placed in trust. We expect that most of the
proceeds held in the trust account will be used as consideration to pay the
sellers of a target business or businesses with which we ultimately complete our
initial business combination. We expect to use substantially all of the net
proceeds of our initial public offering and private placement that are withdrawn
from the trust account to pay expenses in locating and acquiring a target
business, including identifying and evaluating prospective acquisition
candidates, selecting the target business, and structuring, negotiating and
consummating our initial business combination. To the extent that our capital
stock or debt financing is used in whole or in part as consideration to effect
our initial business combination, any proceeds held in the trust account as well
as any other net proceeds not expended will be used to finance the operations of
the target business.
Upon the closing of the initial public offering, we had $1,100,000 in funds
available to us outside of the trust account. That amount, together with
(i) interest income of up to $5,000,000 on the balance of the trust account that
may be released to us for working capital requirements and (ii) additional
amounts that may be released to fund our tax liabilities, will be sufficient to
allow us to operate through February 14, 2010, assuming that our initial
business combination is not consummated during that time. Over this time period,
we anticipate making the following expenditures:
• approximately $240,000 of expenses in fees relating to our office space and
certain general and administrative services;
• approximately $4,760,000 for general working capital that will be used for miscellaneous expenses including expenses for a proposed initial business combination), such as legal, accounting and other expenses, including due diligence expenses and reimbursement of out-of-pocket expenses incurred in connection with the investigation, structuring and negotiation of our initial business combination, director and officer liability insurance premiums and reserves and expenses of our initial public offering to the extent they exceeded the estimates, legal and accounting fees relating to SEC reporting obligations, brokers' retainer fees, consulting fees and finder's fees; and
• approximately 45% of our net income before tax to fund federal, state and local income taxes.
On September 30, 2008, $402,270,297 was held in trust, of which the Company
had the right to withdraw $2,270,297 to fund working capital needs relating to
the proposed business combination and the payment of income taxes. Since the
Public Offering, the Company has withdrawn $2,666,000 in total from the trust
account; $899,000 for working capital purposes and $1,767,000 for the payment of
federal, state and local income taxes.
The Company has remaining authority to withdraw $4,101,000 of total earnings
from the trust account for working capital purposes and to consummate the
purchase of our initial business. The Company is entitled to make additional
withdrawals from earnings to the extent necessary, for the payment of federal,
state and local income taxes.
We do not believe we will need additional financing following our initial
public offering to meet the expenditures required for operating our business
before our initial business combination. However, we will rely on interest
earned on the trust account to fund
such expenditures and, to the extent that the interest earned is below our
expectation, we may have insufficient funds available to operate our business
before our initial business combination.
Moreover, we may need to obtain additional financing either to consummate our
initial business combination or because we become obligated to convert into cash
a significant number of shares of public stockholders voting against our initial
business combination, in which case we may issue additional securities or incur
debt in connection with such business combination. Following our initial
business combination, if cash on hand is insufficient, we may need to obtain
additional financing to meet our obligations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is a broad term for the risk of economic loss due to adverse
changes in the fair value of a financial instrument. These changes may be the
result of various factors, including interest rates, foreign exchange rates,
commodity prices and/or equity prices. The net proceeds of our initial public
offering and the private placement in the trust account have been invested in
various money market funds, which themselves invest principally in short-term
securities issued or guaranteed by the United States having the highest rating
from a recognized credit rating agency or otherwise meeting the conditions under
Rule 2a-7 under the Investment Company Act. Thus, we are currently subject to
market risk primarily through the effect of changes in interest rates on
short-term government securities and other highly rated money-market
instruments. We do not believe that the effect of other changes, such as foreign
exchange rates, commodity prices and/or equity prices currently pose significant
market risk for us. Due to the short-term nature of these investments, we
believe there will be no associated material exposure to interest rate risk.
We have not engaged in any hedging activities since our inception. We do not
currently expect to engage in any hedging activities.
Item 4. Controls and Procedures
We will be required to comply with the internal control requirements of the
Sarbanes-Oxley Act for the fiscal year ending December 31, 2009. As of
September 30, 2008, we had not completed an assessment nor have our auditors
tested our systems of internal control over financial reporting. We expect to
assess the internal controls of our target business or businesses by the
compliance date and, if necessary, to implement and test additional controls as
we may determine are necessary to state that we maintain an effective system of
internal controls. A target business may not be in compliance with the
. . .
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